INGATE

From The Sip Trunking Experts

TMCNet:  Fitch: Dell LBO would Exacerbate Existing Challenges

[January 17, 2013]

Fitch: Dell LBO would Exacerbate Existing Challenges

NEW YORK --(Business Wire)--

Fitch's 2013 technology outlook released last week stated that speculation around a Dell (News - Alert) leveraged buyout (LBO) would re-surface in 2013 but would unlikely be consummated for several reasons. Since our outlook, press reports indicate that a deal may well be on its way. We believe that should an LBO occur, and keeping in mind that there are a number of different financing scenarios, an issuer default rating in the single -'B' category would be likely.

Depending on the structuring, we believe gross leverage could be between 3.5 times (x) to and 4.5x assuming repatriation of a large portion of Dell's international cash. Leverage could be approximately 1.0x higher should the company seek to raise debt secured by portions of the international cash (as some media outlets have speculated).

We would expect the basis for any going-private transaction would revolve around transforming the company into a smaller, higher margin business over the next three-to-five years that would command a higher enterprise value multiple upon exit than its currently being awarded value in the public equity market.

Dell, led by David Johnson (the recently departed head of corporate strategy), has done a solid job of building a portfolio of higher margin end-to-end enterprise solutions of security, networking, storage, and IT management tools. Despite these higher- margin businesses, execution to date has been relatively nascent relative to the company's overall size. High leverage would greatly limit the company's flexibility to address challenges in the highly competitive and evolving technology industry. Dell will continue to face formidable competitors, such as EMC, IBM, Cisco, Oracle, Accenture (News - Alert), HP, and thers, all of which will have far greater financial flexibility, should an LBO be completed.


Dell's ability to repatriate its significant offshore cash is a critical determinant in the LBO decision, as it greatly influences the expected rate of return on the transaction and the vast majority of Dell's cash is held offshore. In addition, we have historically stated that a portion of Dell's cash balance is directly tied to the company's negative working capital balance, which results in significant cash usage when revenues declines. Therefore, we believe Dell needs to maintain an adequate cash cushion to offset this liquidity risk, particularly given the weak macro environment and continued poor performance of the company's PC business.

Dell has spent the last several years expanding its financing business beyond the core U.S. market into Canada and Europe. We would require additional clarity around the company's long-term plans in this area, as it would be impossible to finance this business at the corporate level with a sub-investment investment-grade rating without third-party help. The inability to offer financing would place the company at competitive disadvantage.

We fully expect existing unsecured bonds to be subordinated by any potential LBO transaction. The bonds do not contain change of control covenants and the limitation on liens covenant is generally weak for bondholders.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.


[ Back To SIP Trunking Home's Homepage ]

Loading
Subscribe here for your FREE
SIP TRUNKING enewslettter.

Featured Partner


Featured Whitepapers

SIP Security for the Enterprise
Voice over IP (VoIP) is incorporated into a variety of computer networks, both public and private, and used for everyday transactions and communications among carriers, businesses, government agencies...

Making A Broadband Purchase Decision
Businesses today have many options for broadband connectivity. Clarifying your particular business needs prior to selecting a broadband provider will ensure an optimal match of broadband service to your requirements.

Voice-Optimized Network Delivers Premier Call Experience
Customers equate call quality with business quality. Real-time communication, interpersonal interaction, and the cordial tone of a call center representative can create a positive impression of your business that no email can match.

Featured Case Studies

Business Telecom Expenses Reduced 50%
A small to medium sized company in the midwest was interested in migrating to IP Communications, but in today's economy, they were hesitant to upgrade their communication system due to their perception that the cost would outweigh the benefits.

Multi-State Company Cuts Telecom Costs 50%
A multi-site, multi-state company with extensive monthly long distance fees and toll-free charges did not have adequate broadband for Broadvox SIP Trunking requirements, nor did they have a SIP enabled telephone system.

Discover Leisure Connects Remote Users to its IP-PBX
Discover Leisure is one of the largest resellers of caravans and motor homes in the UK. With 15 branch of?ces all over the country, the company spent a great deal of money every month just on internal phone calls.

Featured eBOOKS

Internet+: The Way Toward Global Unified Communication
Connecting the telephony of the enterprise PBX or Unified Communications (UC) system using SIP trunks instead of conventional telephone lines has been very successful in recent years.

What is SIP Trunking? Edition 2
SIP trunking is becoming more of a focus for service providers. One key issue many service providers face when deploying SIP trunks is NAT, or Network Address Translation, traversal.

What is SIP Trunking? Edition 1
A vast resource for information about all things SIP - including SIP, security, VoIP, SIP trunking and Unified Communications.

Featured Videos

Broadvox VAR Testimonial VAR 1:
Part 1 of the VAR (Value Added Reseller) Partner Program Testimonials for Broadvox...

E-SBCs AS The Demarcation Point:
Ingate's Steve Johnson talks to Erik Linask about the role session border controller plays as the demarcation point at...

Demystifying DPI
How can deep packet inspection protect your SIP traffic as well as your entire network?

Featured Resources

Partner Program Overview:
Over 4,000 VARs, Master Agents, Solution Providers, and Independent IT Professionals trust Broadvox. We offer customized services and solutions to fit seamlessly into any company's business model. And when you partner with Broadvox, every member of our team stands behind you and your customers 100%...

SIP Trunk UC Summit

What's New

Presenting the New Ingate/Intertex Website:
Internet+ is an extended Internet access allowing high quality SIP (Session Initiation Protocol) based real-time person-to-person communication, everywhere and for any application. It applies to both fixed and mobile networks ...

Featured Blogs

Featured Webinars

Secure SIP Trunking:
What You Need to Know

Successfully Deploying Enterprise SIP Trunking:
Tools and Techniques for Overcoming Common Roadblocks

Featured Podcasts

Getting the Most Out of Your SIP Trunks:
Ingate's Steve Johnson and TMC's Erik Linask discuss how best practices forgetting the most out of SIP Trunking services and common pitfalls to avoid.

Featured Datasheets

Ingate SIParator E-SBCs
Adopting SIP is a simple process with the Ingate SIParator, the secure enterprise session border controller (E-SBC). The SIParator makes secure SIP communications - including VoIP,SIP trunking and more - possible while working seamlessly with your existing network firewall.

Ingate Firewalls
Everyone is talking about enterprise usage of VoIP, instant messaging and other types of realtime communications including presence and conferencing.

SIP Trunk Solutions for Service Providers
The award-winning Ingate Firewall and Ingate SIParator deliver a high quality, reliable SIP trunk connection between the customer's IP-PBX and the service provider network, and solve interoperability issues to simplify deployments and support for remote diagnosis of reported issues.